Oppenheimer analyst Timothy Horan had a Perform rating on Charter Communications, Inc (NASDAQ:CHTR).

Last week, the company reported fourth-quarter FY23 revenue growth of 0.3% year-on-year to $13.711 billion, beating the consensus of $13.699 billion. EPS of $7.07 missed the consensus of $8.73.

The analyst noted that weak results continue to be driven by the secular decline of legacy services and new competition. 

Broadband additions have stopped from significant competitive pressure from FWA, which could capture ~4 million net adds annually, and fiber competition, as per Horan. 

Positively, CHTR is aggressively investing in its network and digitizing its cost structure and video model, he stated. 

Its new Xumo platform seamlessly integrates linear TV and OTT video, enabling a unique and attractive service when bundled with wireless. 

It remains the right strategy long-term, but aggressive promos, a weak balance sheet, high capital expenditure, and weaker subscriber growth remain short-term risks. 

The analyst also noted that CHTR is relatively expensive compared to peers at a 5.5% FY24 free cash flow yield versus peers at 7-14%.

The analyst projects first-quarter revenue and EPS of $13.71 billion (versus consensus of $13.79 billion) and $8.13 (versus consensus of $8.07).

Raymond James analyst Frank G. Louthan had a Market Perform rating.

The analyst recommends that investors avoid Charter as risk remains for continued unexpected pressures on the stock related to the long tail of increasing competitive pressure that will limit Charter's ability to experience multiple expansions in the medium to near term.

Louthan stated that management remains focused on expanding its network, and FCF has declined and will likely be down mid-teen % per year from 2022-2025. He modeled it to the bottom in 2025, which makes price appreciation challenging.

Management is adamant that they are earning mid-teen IRRs in rural expansion, although they give little indication of how and when they will achieve this, per Louthan. The analyst reiterated that 70% penetration on their rural builds is just breakeven.

Management firmly stated that the SpectrumOne promotion is not the source of the subscriber losses and failed to give churn statistics to demonstrate that clearly, the analyst noted.

Benchmark analyst Matthew Harrigan maintained a Buy rating with a price target of $440, down from $490 due to estimate revisions, more constrictive valuation parameters, and acknowledging no likely 2024 change in negative sentiment. 

In the interim, the market will likely continue to view Charter as ex-growth, per Harrigan. 

Last Friday, CEO Chris Winfrey reiterated conviction in Charter's converged network approach and ‘10G' network upgrade program at a continued $100 home passed cost as well as government-subsidized rural new builds, even some fuzziness around ‘BEAD' especially as far as states meeting NTIA guidelines.

Management suggested Charter's footprint expansion beats pacing, penetration, ARPU, and ROI targets. Any inflection critically depends on the appeal of Spectrum One and the new Xumo platform (now approaching 1 million boxes) integrating video and DTC offerings. 

Charter needs to maintain a semblance of pricing power, especially for premium broadband offerings, which should be sustainable given increasing necessity and value to the consumer off 30%+ annual increases in consumption, Harrigan stated. The caveat is that competitors must adhere to rational pricing models supporting ROI on significant network investments.

Price Action: CHTR shares traded lower by 3.65% at $307.56 on the last check Monday.

Photo via Wikimedia Commons